Steve writes editorials for each issue of Forbes under the heading of “Fact and Comment.” A widely respected economic prognosticator, he is the only writer to have won the highly prestigious Crystal Owl Award four times. The prize was formerly given by U.S. Steel Corporation to the financial journalist whose economic forecasts for the coming year proved most accurate.

In both 1996 and 2000, Steve campaigned vigorously for the Republican nomination for the Presidency. Key to his platform were a flat tax, medical savings accounts, a new Social Security system for working Americans, parental choice of schools for their children, term limits and a strong national defense. Steve continues to energetically promote this agenda.

Robert McNamara Gave Us The Vietnam Disaster; Hank Paulson, the Financial Version of That Debacle

Robert Strange McNamara, U.S. Defense Secretary from 1961-68, was hailed in his day as a technocratic genius, a man who could dazzlingly run anything (he’d just been named president of Ford MotorFord Motor before being tapped to manage the Pentagon by newly elected President John F. Kennedy) through awesome numbers crunching and cold, scientific analysis. McNamara brought his formidable mind to bear on the troubling, growing communist insurgency in South Vietnam. He thought “escalation”was the key to victory, that the gradual application of increasing U.S. military power would force North Vietnam, the mastermind and supplier of the rebels in the South, to cry uncle. McNamara put much stock in enemy “body counts” and other metrics to gauge how close we were to winning. The U.S. lost its first war, and, too late, McNamara was shunted aside.

As a consolation prize McNamara was given the presidency of the World Bank, where he went on a binge of “poverty-fighting” spending. Throw enough money at the Third World and, voilà, disease would be eliminated, schools would blossom and economies would flourish as infrastructure projects sprouted up everywhere. Alas, poverty persisted and corruption mushroomed.

McNamara is long gone, but bad-judgment-cum-grandiosity is alive and well in the person of former Treasury Secretary Hank Paulson.

McNamara giving a Vietnam War briefing.

Not content with bearing major responsibility for one of our worst-ever economic disasters–one whose effects, thanks to persistent errors, weigh us and the world down to this day–Paulson now wants to help lead the charge to save us from global warming. In a New York Times op-ed Paulson has trotted out all the moldy jeremiads of the planet burning up while coastal cities are inundated with rising oceans if we don’t rid the planet of carbon dioxide emissions by taxing them into extinction.

One hardly knows where to begin. The global-warming issue is hardly settled–in fact, the evidence is becoming increasingly adverse for the Al Gores of the world. Temperatures change for a variety of reasons, including sun spots. Such shifts have been going on from time immemorial. Some experts believe we’re still in the process of recovering from the mini ice age that began around 1300 and didn’t end until the early 1800s. Before that cold wave hit, wine was routinely produced in southern England.

Even if you buy into man-made climate change, the inconvenient truth indicates that, overall, warming does more good than harm. Nonetheless, Paulson wants to burden us with more taxes to force the use of renewable energy sources. Goodness, hasn’t the man read about Germany and Denmark, which went whole hog for renewables? Electricity costs in Germany are about three times those in the U.S.

Paulson airily dismisses energy cost differentials: “Renewable energy can outcompete dirty fuels once pollution costs are accounted for.” Ah, yes, if the numbers don’t work, impute additional costs! What price does he place on the hundreds of thousands of birds, including endangered species, that windmills routinely chop up?

In recent years some $1 trillion in all sorts of subsidies have been expended on renewables in the name of battling global warming. Ponder for a moment what all those resources could have done to benefit mankind if they’d been invested in creating new products and services, in research to fight such diseases as Alzheimer’s, or to increase crop yields.

For the record, carbon emissions in the U.S. are falling, thanks in part to the revolution in natural gas drilling.

Instead of trying to foist McNamara-like grand schemes on us, Paulson should ponder why, during his tenure, the world came close to suffering the financial version of cardiac arrest.

The principal cause was the weak-dollar policy (see Steve Forbes’ new book, Money: How the Destruction of the Dollar Threatens the Global Economy—And What We Can Do About It—http://www.amazon.com/Money-Destruction-Dollar-Threatens-Economy/dp/0071823700) that he and two of his predecessors pursued. Weak money always begets economic disasters. Ask Argentina. What the Paulsons of the world don’t grasp is that money measures value, the way scales measure weight. It infinitely facilitates commerce, replacing the hopelessly cumbersome process of barter. Money represents a claim on products and services, just as a coat-check ticket is a claim on your jacket at a restaurant. A money system is crucially dependent on trust. Counterfeiting is illegal because it’s a form of thievery: It creates money out of nothing. Yet when the government does just that, it’s called “stimulus.” John Locke famously noted that when governments change the value of money, the lender or creditor is cheated.

When money has a fixed value–which the dollar had for 180 years under the gold standard–it always facilitates long-term growth.

A weakening dollar didn’t bother Paulson, because he thought it would help U.S. exports. Think about that à la John Locke: Weakening the greenback is a form of cheating; it’s no different from selling someone a pound of cheese that actually weighs only 14 ounces.

When you undermine a currency, money flees to commodities and other hard assets. Yet Paulson, his immediate predecessors and the Federal Reserve have never linked the dots between the weak dollar and the surge in oil prices or the bubble in housing.

Paulson committed other ghastly errors of McNamara-like proportions: his blindness to the devastating impact the newly installed principle of mark-to-market accounting was having on already beleaguered banks (once the House of Representatives forced its virtual suspension in March 2009, the bear market abruptly ended and stocks soared); his decision to bail out the creditors of Bear Stearns (setting up expectations that the bigger Lehman Bros. would be treated similarly, and when it wasn’t, panic set in); his crude “offer you can’t refuse” bludgeoning of solvent banks to accept Tarp money, a process that has led to the banks becoming virtual vassals of the federal government; and his many arbitrary choices as to which institutions to seize, which to put out of existence and which to let live.

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